G.R. No.

159647 April 15, 2005

COMMISSIONER OF INTERNAL REVENUE, Petitioners,

vs.

CENTRAL LUZON DRUG CORPORATION, Respondent.

DECISION

PANGANIBAN, J.:

The 20 percent discount required by the law to be given to senior citizens is a tax credit,
not merely a tax deduction from the gross income or gross sale of the establishment
concerned. A tax credit is used by a private establishment only after the tax has been
computed; a tax deduction, before the tax is computed. RA 7432 unconditionally grants
a tax credit to all covered entities. Thus, the provisions of the revenue regulation that
withdraw or modify such grant are void. Basic is the rule that administrative regulations
cannot amend or revoke the law.

The Case

Before us is a Petition for Review1 under Rule 45 of the Rules of Court, seeking to set
aside the August 29, 2002 Decision2 and the August 11, 2003 Resolution3 of the Court
of Appeals (CA) in CA-GR SP No. 67439. The assailed Decision reads as follows:

"WHEREFORE, premises considered, the Resolution appealed from is AFFIRMED in

toto. No costs."4

The assailed Resolution denied petitioners Motion for Reconsideration.

The Facts

The CA narrated the antecedent facts as follows:

"Respondent is a domestic corporation primarily engaged in retailing of medicines and

other pharmaceutical products. In 1996, it operated six (6) drugstores under the
business name and style Mercury Drug.

"From January to December 1996, respondent granted twenty (20%) percent sales
discount to qualified senior citizens on their purchases of medicines pursuant to
Republic Act No. [R.A.] 7432 and its Implementing Rules and Regulations. For the said
period, the amount allegedly representing the 20% sales discount granted by
respondent to qualified senior citizens totaled P904,769.00.

"On April 15, 1997, respondent filed its Annual Income Tax Return for taxable year 1996
declaring therein that it incurred net losses from its operations.

"On January 16, 1998, respondent filed with petitioner a claim for tax refund/credit in the
amount of P904,769.00 allegedly arising from the 20% sales discount granted by
respondent to qualified senior citizens in compliance with [R.A.] 7432. Unable to obtain
affirmative response from petitioner, respondent elevated its claim to the Court of Tax
Appeals [(CTA or Tax Court)] via a Petition for Review.

"On February 12, 2001, the Tax Court rendered a Decision5 dismissing respondents
Petition for lack of merit. In said decision, the [CTA] justified its ruling with the following
ratiocination:

x x x, if no tax has been paid to the government, erroneously or illegally, or if no amount

is due and collectible from the taxpayer, tax refund or tax credit is unavailing. Moreover,
whether the recovery of the tax is made by means of a claim for refund or tax credit,
before recovery is allowed[,] it must be first established that there was an actual
collection and receipt by the government of the tax sought to be recovered. x x x.

x x x x x x x x x

Prescinding from the above, it could logically be deduced that tax credit is premised on
the existence of tax liability on the part of taxpayer. In other words, if there is no tax
liability, tax credit is not available.

"Respondent lodged a Motion for Reconsideration. The [CTA], in its assailed

resolution,6 granted respondents motion for reconsideration and ordered herein
petitioner to issue a Tax Credit Certificate in favor of respondent citing the decision of
the then Special Fourth Division of [the CA] in CA G.R. SP No. 60057 entitled Central
[Luzon] Drug Corporation vs. Commissioner of Internal Revenue promulgated on May
31, 2001, to wit:

However, Sec. 229 clearly does not apply in the instant case because the tax sought to
be refunded or credited by petitioner was not erroneously paid or illegally collected. We
take exception to the CTAs sweeping but unfounded statement that both tax refund
and tax credit are modes of recovering taxes which are either erroneously or illegally
paid to the government. Tax refunds or credits do not exclusively pertain to illegally
collected or erroneously paid taxes as they may be other circumstances where a refund
is warranted. The tax refund provided under Section 229 deals exclusively with illegally
collected or erroneously paid taxes but there are other possible situations, such as the
refund of excess estimated corporate quarterly income tax paid, or that of excess input
tax paid by a VAT-registered person, or that of excise tax paid on goods locally
produced or manufactured but actually exported. The standards and mechanics for the
grant of a refund or credit under these situations are different from that under Sec. 229.
Sec. 4[.a)] of R.A. 7432, is yet another instance of a tax credit and it does not in any
way refer to illegally collected or erroneously paid taxes, x x x."7

Ruling of the Court of Appeals

The CA affirmed in toto the Resolution of the Court of Tax Appeals (CTA) ordering
petitioner to issue a tax credit certificate in favor of respondent in the reduced amount of
P903,038.39. It reasoned that Republic Act No. (RA) 7432 required neither a tax liability
nor a payment of taxes by private establishments prior to the availment of a tax credit.
Moreover, such credit is not tantamount to an unintended benefit from the law, but
rather a just compensation for the taking of private property for public use.

Hence this Petition.8

The Issues

Petitioner raises the following issues for our consideration:

"Whether the Court of Appeals erred in holding that respondent may claim the 20%
sales discount as a tax credit instead of as a deduction from gross income or gross
sales.

"Whether the Court of Appeals erred in holding that respondent is entitled to a refund."9

These two issues may be summed up in only one: whether respondent, despite
incurring a net loss, may still claim the 20 percent sales discount as a tax credit.

The Courts Ruling

The Petition is not meritorious.

Sole Issue:
Claim of 20 Percent Sales Discount

as Tax Credit Despite Net Loss

Section 4a) of RA 743210 grants to senior citizens the privilege of obtaining a 20

percent discount on their purchase of medicine from any private establishment in the
country.11 The latter may then claim the cost of the discount as a tax credit.12 But can
such credit be claimed, even though an establishment operates at a loss?

We answer in the affirmative.

Tax Credit versus

Tax Deduction

Although the term is not specifically defined in our Tax Code,13 tax credit generally
refers to an amount that is "subtracted directly from ones total tax liability."14 It is an
"allowance against the tax itself"15 or "a deduction from what is owed"16 by a taxpayer
to the government. Examples of tax credits are withheld taxes, payments of estimated
tax, and investment tax credits.17

Tax credit should be understood in relation to other tax concepts. One of these is tax
deduction -- defined as a subtraction "from income for tax purposes,"18 or an amount
that is "allowed by law to reduce income prior to [the] application of the tax rate to
compute the amount of tax which is due."19 An example of a tax deduction is any of the
allowable deductions enumerated in Section 3420 of the Tax Code.

A tax credit differs from a tax deduction. On the one hand, a tax credit reduces the tax
due, including -- whenever applicable -- the income tax that is determined after applying
the corresponding tax rates to taxable income.21 A tax deduction, on the other, reduces
the income that is subject to tax22 in order to arrive at taxable income.23 To think of the
former as the latter is to avoid, if not entirely confuse, the issue. A tax credit is used only
after the tax has been computed; a tax deduction, before.

Tax Liability Required

for Tax Credit

Since a tax credit is used to reduce directly the tax that is due, there ought to be a tax
liability before the tax credit can be applied. Without that liability, any tax credit
application will be useless. There will be no reason for deducting the latter when there
is, to begin with, no existing obligation to the government. However, as will be
presented shortly, the existence of a tax credit or its grant by law is not the same as the
availment or use of such credit. While the grant is mandatory, the availment or use is
not.

If a net loss is reported by, and no other taxes are currently due from, a business
establishment, there will obviously be no tax liability against which any tax credit can be
applied.24 For the establishment to choose the immediate availment of a tax credit will
be premature and impracticable. Nevertheless, the irrefutable fact remains that, under
RA 7432, Congress has granted without conditions a tax credit benefit to all covered
establishments.

Although this tax credit benefit is available, it need not be used by losing ventures, since
there is no tax liability that calls for its application. Neither can it be reduced to nil by the
quick yet callow stroke of an administrative pen, simply because no reduction of taxes
can instantly be effected. By its nature, the tax credit may still be deducted from a
future, not a present, tax liability, without which it does not have any use. In the
meantime, it need not move. But it breathes.

Prior Tax Payments Not

Required for Tax Credit

While a tax liability is essential to the availment or use of any tax credit, prior tax
payments are not. On the contrary, for the existence or grant solely of such credit,
neither a tax liability nor a prior tax payment is needed. The Tax Code is in fact replete
with provisions granting or allowing tax credits, even though no taxes have been
previously paid.

For example, in computing the estate tax due, Section 86(E) allows a tax credit --
subject to certain limitations -- for estate taxes paid to a foreign country. Also found in
Section 101(C) is a similar provision for donors taxes -- again when paid to a foreign
country -- in computing for the donors tax due. The tax credits in both instances allude
to the prior payment of taxes, even if not made to our government.

Under Section 110, a VAT (Value-Added Tax)- registered person engaging in

transactions -- whether or not subject to the VAT -- is also allowed a tax credit that
includes a ratable portion of any input tax not directly attributable to either activity. This
input tax may either be the VAT on the purchase or importation of goods or services
that is merely due from -- not necessarily paid by -- such VAT-registered person in the
course of trade or business; or the transitional input tax determined in accordance with
Section 111(A). The latter type may in fact be an amount equivalent to only eight
percent of the value of a VAT-registered persons beginning inventory of goods,
materials and supplies, when such amount -- as computed -- is higher than the actual
VAT paid on the said items.25 Clearly from this provision, the tax credit refers to an
input tax that is either due only or given a value by mere comparison with the VAT
actually paid -- then later prorated. No tax is actually paid prior to the availment of such
credit.

In Section 111(B), a one and a half percent input tax credit that is merely presumptive is
allowed. For the purchase of primary agricultural products used as inputs -- either in the
processing of sardines, mackerel and milk, or in the manufacture of refined sugar and
cooking oil -- and for the contract price of public work contracts entered into with the
government, again, no prior tax payments are needed for the use of the tax credit.
More important, a VAT-registered person whose sales are zero-rated or effectively zero-
rated may, under Section 112(A), apply for the issuance of a tax credit certificate for the
amount of creditable input taxes merely due -- again not necessarily paid to -- the
government and attributable to such sales, to the extent that the input taxes have not
been applied against output taxes.26 Where a taxpayer

is engaged in zero-rated or effectively zero-rated sales and also in taxable or exempt

sales, the amount of creditable input taxes due that are not directly and entirely
attributable to any one of these transactions shall be proportionately allocated on the
basis of the volume of sales. Indeed, in availing of such tax credit for VAT purposes, this
provision -- as well as the one earlier mentioned -- shows that the prior payment of
taxes is not a requisite.

It may be argued that Section 28(B)(5)(b) of the Tax Code is another illustration of a tax
credit allowed, even though no prior tax payments are not required. Specifically, in this
provision, the imposition of a final withholding tax rate on cash and/or property
dividends received by a nonresident foreign corporation from a domestic corporation is
subjected to the condition that a foreign tax credit will be given by the domiciliary
country in an amount equivalent to taxes that are merely deemed paid.27 Although true,
this provision actually refers to the tax credit as a condition only for the imposition of a
lower tax rate, not as a deduction from the corresponding tax liability. Besides, it is not
our government but the domiciliary country that credits against the income tax payable
to the latter by the foreign corporation, the tax to be foregone or spared.28

In contrast, Section 34(C)(3), in relation to Section 34(C)(7)(b), categorically allows as

credits, against the income tax imposable under Title II, the amount of income taxes
merely incurred -- not necessarily paid -- by a domestic corporation during a taxable
year in any foreign country. Moreover, Section 34(C)(5) provides that for such taxes
incurred but not paid, a tax credit may be allowed, subject to the condition precedent
that the taxpayer shall simply give a bond with sureties satisfactory to and approved by
petitioner, in such sum as may be required; and further conditioned upon payment by
the taxpayer of any tax found due, upon petitioners redetermination of it.

In addition to the above-cited provisions in the Tax Code, there are also tax treaties and
special laws that grant or allow tax credits, even though no prior tax payments have
been made.
Under the treaties in which the tax credit method is used as a relief to avoid double
taxation, income that is taxed in the state of source is also taxable in the state of
residence, but the tax paid in the former is merely allowed as a credit against the tax
levied in the latter.29 Apparently, payment is made to the state of source, not the state
of residence. No tax, therefore, has been previously paid to the latter.

Under special laws that particularly affect businesses, there can also be tax credit
incentives. To illustrate, the incentives provided for in Article 48 of Presidential Decree
No. (PD) 1789, as amended by Batas Pambansa Blg. (BP) 391, include tax credits
equivalent to either five percent of the net value earned, or five or ten percent of the net
local content of exports.30 In order to avail of such credits under the said law and still
achieve its objectives, no prior tax payments are necessary.

From all the foregoing instances, it is evident that prior tax payments are not
indispensable to the availment of a tax credit. Thus, the CA correctly held that the
availment under RA 7432 did not require prior tax payments by private establishments
concerned.31 However, we do not agree with its finding32 that the carry-over of tax
credits under the said special law to succeeding taxable periods, and even their
application against internal revenue taxes, did not necessitate the existence of a tax
liability.

The examples above show that a tax liability is certainly important in the availment or
use, not the existence or grant, of a tax credit. Regarding this matter, a private
establishment reporting a net loss in its financial statements is no different from another
that presents a net income. Both are entitled to the tax credit provided for under RA
7432, since the law itself accords that unconditional benefit. However, for the losing
establishment to immediately apply such credit, where no tax is due, will be an
improvident usance.

Sections 2.i and 4 of Revenue

Regulations No. 2-94 Erroneous

RA 7432 specifically allows private establishments to claim as tax credit the amount of
discounts they grant.33 In turn, the Implementing Rules and Regulations, issued
pursuant thereto, provide the procedures for its availment.34 To deny such credit,
despite the plain mandate of the law and the regulations carrying out that mandate, is
indefensible.

First, the definition given by petitioner is erroneous. It refers to tax credit as the amount
representing the 20 percent discount that "shall be deducted by the said establishments
from their gross income for income tax purposes and from their gross sales for value-
added tax or other percentage tax purposes."35 In ordinary business language, the tax
credit represents the amount of such discount. However, the manner by which the
discount shall be credited against taxes has not been clarified by the revenue
regulations.

By ordinary acceptation, a discount is an "abatement or reduction made from the gross

amount or value of anything."36 To be more precise, it is in business parlance "a
deduction or lowering of an amount of money;"37 or "a reduction from the full amount or
value of something, especially a price."38 In business there are many kinds of discount,
the most common of which is that affecting the income statement39 or financial report
upon which the income tax is based.

Business Discounts

Deducted from Gross Sales

A cash discount, for example, is one granted by business establishments to credit

customers for their prompt payment.40 It is a "reduction in price offered to the purchaser
if payment is made within a shorter period of time than the maximum time specified."41
Also referred to as a sales discount on the part of the seller and a purchase discount on
the part of the buyer, it may be expressed in such

terms as "5/10, n/30."42

A quantity discount, however, is a "reduction in price allowed for purchases made in
large quantities, justified by savings in packaging, shipping, and handling."43 It is also
called a volume or bulk discount.44

A "percentage reduction from the list price x x x allowed by manufacturers to

wholesalers and by wholesalers to retailers"45 is known as a trade discount. No entry
for it need be made in the manual or computerized books of accounts, since the
purchase or sale is already valued at the net price actually charged the buyer.46 The
purpose for the discount is to encourage trading or increase sales, and the prices at
which the purchased goods may be resold are also suggested.47 Even a chain discount
-- a series of discounts from one list price -- is recorded at net.48

Finally, akin to a trade discount is a functional discount. It is "a suppliers price discount
given to a purchaser based on the [latters] role in the [formers] distribution system."49
This role usually involves warehousing or advertising.

Based on this discussion, we find that the nature of a sales discount is peculiar.
Applying generally accepted accounting principles (GAAP) in the country, this type of
discount is reflected in the income statement50 as a line item deducted -- along with
returns, allowances, rebates and other similar expenses -- from gross sales to arrive at
net sales.51 This type of presentation is resorted to, because the accounts receivable
and sales figures that arise from sales discounts, -- as well as from quantity, volume or
bulk discounts -- are recorded in the manual and computerized books of accounts and
reflected in the financial statements at the gross amounts of the invoices.52 This
manner of recording credit sales -- known as the gross method -- is most widely used,
because it is simple, more convenient to apply than the net method, and produces no
material errors over time.53

However, under the net method used in recording trade, chain or functional discounts,
only the net amounts of the invoices -- after the discounts have been deducted -- are
recorded in the books of accounts54 and reflected in the financial statements. A
separate line item cannot be shown,55 because the transactions themselves involving
both accounts receivable and sales have already been entered into, net of the said
discounts.
The term sales discounts is not expressly defined in the Tax Code, but one provision
adverts to amounts whose sum -- along with sales returns, allowances and cost of
goods sold56 -- is deducted from gross sales to come up with the gross income, profit
or margin57 derived from business.58 In another provision therein, sales discounts that
are granted and indicated in the invoices at the time of sale -- and that do not depend
upon the happening of any future event -- may be excluded from the gross sales within
the same quarter they were given.59 While determinative only of the VAT, the latter
provision also appears as a suitable reference point for income tax purposes already
embraced in the former. After all, these two provisions affirm that sales discounts are
amounts that are always deductible from gross sales.

Reason for the Senior Citizen Discount:

The Law, Not Prompt Payment

A distinguishing feature of the implementing rules of RA 7432 is the private

establishments outright deduction of the discount from the invoice price of the medicine
sold to the senior citizen.60 It is, therefore, expected that for each retail sale made
under this law, the discount period lasts no more than a day, because such discount is
given -- and the net amount thereof collected -- immediately upon perfection of the
sale.61 Although prompt payment is made for an arms-length transaction by the senior
citizen, the real and compelling reason for the private establishment giving the discount
is that the law itself makes it mandatory.

What RA 7432 grants the senior citizen is a mere discount privilege, not a sales
discount or any of the above discounts in particular. Prompt payment is not the reason
for (although a necessary consequence of) such grant. To be sure, the privilege enjoyed
by the senior citizen must be equivalent to the tax credit benefit enjoyed by the private
establishment granting the discount. Yet, under the revenue regulations promulgated by
our tax authorities, this benefit has been erroneously likened and confined to a sales
discount.
To a senior citizen, the monetary effect of the privilege may be the same as that
resulting from a sales discount. However, to a private establishment, the effect is
different from a simple reduction in price that results from such discount. In other words,
the tax credit benefit is not the same as a sales discount. To repeat from our earlier
discourse, this benefit cannot and should not be treated as a tax deduction.

To stress, the effect of a sales discount on the income statement and income tax return
of an establishment covered by RA 7432 is different from that resulting from the
availment or use of its tax credit benefit. While the former is a deduction before, the
latter is a deduction after, the income tax is computed. As mentioned earlier, a discount
is not necessarily a sales discount, and a tax credit for a simple discount privilege
should not be automatically treated like a sales discount. Ubi lex non distinguit, nec nos
distinguere debemus. Where the law does not distinguish, we ought not to distinguish.

Sections 2.i and 4 of Revenue Regulations No. (RR) 2-94 define tax credit as the 20
percent discount deductible from gross income for income tax purposes, or from gross
sales for VAT or other percentage tax purposes. In effect, the tax credit benefit under
RA 7432 is related to a sales discount. This contrived definition is improper, considering
that the latter has to be deducted from gross sales in order to compute the gross
income in the income statement and cannot be deducted again, even for purposes of
computing the income tax.

When the law says that the cost of the discount may be claimed as a tax credit, it
means that the amount -- when claimed -- shall be treated as a reduction from any tax
liability, plain and simple. The option to avail of the tax credit benefit depends upon the
existence of a tax liability, but to limit the benefit to a sales discount -- which is not even
identical to the discount privilege that is granted by law -- does not define it at all and
serves no useful purpose. The definition must, therefore, be stricken down.

Laws Not Amended

by Regulations
Second, the law cannot be amended by a mere regulation. In fact, a regulation that
"operates to create a rule out of harmony with

the statute is a mere nullity";62 it cannot prevail.

It is a cardinal rule that courts "will and should respect the contemporaneous
construction placed upon a statute by the executive officers whose duty it is to enforce it
x x x."63 In the scheme of judicial tax administration, the need for certainty and
predictability in the implementation of tax laws is crucial.64 Our tax authorities fill in the
details that "Congress may not have the opportunity or competence to provide."65 The
regulations these authorities issue are relied upon by taxpayers, who are certain that
these will be followed by the courts.66 Courts, however, will not uphold these
authorities interpretations when clearly absurd, erroneous or improper.

In the present case, the tax authorities have given the term tax credit in Sections 2.i and
4 of RR 2-94 a meaning utterly in contrast to what RA 7432 provides. Their
interpretation has muddled up the intent of Congress in granting a mere discount
privilege, not a sales discount. The administrative agency issuing these regulations may
not enlarge, alter or restrict the provisions of the law it administers; it cannot engraft
additional requirements not contemplated by the legislature.67

In case of conflict, the law must prevail.68 A "regulation adopted pursuant to law is
law."69 Conversely, a regulation or any portion thereof not adopted pursuant to law is
no law and has neither the force nor the effect of law.70

Availment of Tax

Credit Voluntary

Third, the word may in the text of the statute71 implies that the
availability of the tax credit benefit is neither unrestricted nor mandatory.72 There is no
absolute right conferred upon respondent, or any similar taxpayer, to avail itself of the
tax credit remedy whenever it chooses; "neither does it impose a duty on the part of the
government to sit back and allow an important facet of tax collection to be at the sole
control and discretion of the taxpayer."73 For the tax authorities to compel respondent
to deduct the 20 percent discount from either its gross income or its gross sales74 is,
therefore, not only to make an imposition without basis in law, but also to blatantly
contravene the law itself.

What Section 4.a of RA 7432 means is that the tax credit benefit is merely permissive,
not imperative. Respondent is given two options -- either to claim or not to claim the
cost of the discounts as a tax credit. In fact, it may even ignore the credit and simply
consider the gesture as an act of beneficence, an expression of its social conscience.

Granting that there is a tax liability and respondent claims such cost as a tax credit, then
the tax credit can easily be applied. If there is none, the credit cannot be used and will
just have to be carried over and revalidated75 accordingly. If, however, the business
continues to operate at a loss and no other taxes are due, thus compelling it to close
shop, the credit can never be applied and will be lost altogether.

In other words, it is the existence or the lack of a tax liability that determines whether the
cost of the discounts can be used as a tax credit. RA 7432 does not give respondent the
unfettered right to avail itself of the credit whenever it pleases. Neither does it allow our
tax administrators to expand or contract the legislative mandate. "The plain meaning
rule or verba legis in statutory construction is thus applicable x x x. Where the words of
a statute are clear, plain and free from ambiguity, it must be given its literal meaning
and applied without attempted interpretation."76

Tax Credit Benefit

Deemed Just Compensation

Fourth, Sections 2.i and 4 of RR 2-94 deny the exercise by the State of its power of
eminent domain. Be it stressed that the privilege enjoyed by senior citizens does not
come directly from the State, but rather from the private establishments concerned.
Accordingly, the tax credit benefit granted to these establishments can be deemed as
their just compensation for private property taken by the State for public use.77

The concept of public use is no longer confined to the traditional notion of use by the
public, but held synonymous with public interest, public benefit, public welfare, and
public convenience.78 The discount privilege to which our senior citizens are entitled is
actually a benefit enjoyed by the general public to which these citizens belong. The
discounts given would have entered the coffers and formed part of the gross sales of
the private establishments concerned, were it not for RA 7432. The permanent
reduction in their total revenues is a forced subsidy corresponding to the taking of
private property for public use or benefit.

As a result of the 20 percent discount imposed by RA 7432, respondent becomes

entitled to a just compensation. This term refers not only to the issuance of a tax credit
certificate indicating the correct amount of the discounts given, but also to the
promptness in its release. Equivalent to the payment of property taken by the State,
such issuance -- when not done within a reasonable time from the grant of the discounts
-- cannot be considered as just compensation. In effect, respondent is made to suffer
the consequences of being immediately deprived of its revenues while awaiting actual
receipt, through the certificate, of the equivalent amount it needs to cope with the
reduction in its revenues.79

Besides, the taxation power can also be used as an implement for the exercise of the
power of eminent domain.80 Tax measures are but "enforced contributions exacted on
pain of penal sanctions"81 and "clearly imposed for a public purpose."82 In recent
years, the power to tax has indeed become a most effective tool to realize social justice,
public welfare, and the equitable distribution of wealth.83

While it is a declared commitment under Section 1 of RA 7432, social justice "cannot be

invoked to trample on the rights of property owners who under our Constitution and laws
are also entitled to protection. The social justice consecrated in our [C]onstitution [is] not
intended to take away rights from a person and give them to another who is not entitled
thereto."84 For this reason, a just compensation for income that is taken away from
respondent becomes necessary. It is in the tax credit that our legislators find support to
realize social justice, and no administrative body can alter that fact.

To put it differently, a private establishment that merely breaks even85 -- without the
discounts yet -- will surely start to incur losses because of such discounts. The same
effect is expected if its mark-up is less than 20 percent, and if all its sales come from
retail purchases by senior citizens. Aside from the observation we have already raised
earlier, it will also be grossly unfair to an establishment if the discounts will be treated
merely as deductions from either its gross income or its gross sales. Operating at a loss
through no fault of its own, it will realize that the tax credit limitation under RR 2-94 is
inutile, if not improper. Worse, profit-generating businesses will be put in a better
position if they avail themselves of tax credits denied those that are losing, because no
taxes are due from the latter.

Grant of Tax Credit

Intended by the Legislature

Fifth, RA 7432 itself seeks to adopt measures whereby senior citizens are assisted by
the community as a whole and to establish a program beneficial to them.86 These
objectives are consonant with the constitutional policy of making "health x x x services
available to all the people at affordable cost"87 and of giving "priority for the needs of
the x x x elderly."88 Sections 2.i and 4 of RR 2-94, however, contradict these
constitutional policies and statutory objectives.

Furthermore, Congress has allowed all private establishments a simple tax credit, not a
deduction. In fact, no cash outlay is required from the government for the availment or
use of such credit. The deliberations on February 5, 1992 of the Bicameral Conference
Committee Meeting on Social Justice, which finalized RA 7432, disclose the true intent
of our legislators to treat the sales discounts as a tax credit, rather than as a deduction
from gross income. We quote from those deliberations as follows:
"THE CHAIRMAN (Rep. Unico). By the way, before that ano, about deductions from
taxable income. I think we incorporated there a provision na - on the responsibility of the
private hospitals and drugstores, hindi ba?

SEN. ANGARA. Oo.

THE CHAIRMAN. (Rep. Unico), So, I think we have to put in also a provision here about
the deductions from taxable income of that private hospitals, di ba ganon 'yan?

MS. ADVENTO. Kaya lang po sir, and mga discounts po nila affecting government and
public institutions, so, puwede na po nating hindi isama yung mga less deductions ng
taxable income.

THE CHAIRMAN. (Rep. Unico). Puwede na. Yung about the private hospitals. Yung
isiningit natin?

MS. ADVENTO. Singit na po ba yung 15% on credit. (inaudible/did not use the
microphone).

SEN. ANGARA. Hindi pa, hindi pa.

THE CHAIRMAN. (Rep. Unico) Ah, 'di pa ba naisama natin?

SEN. ANGARA. Oo. You want to insert that?

THE CHAIRMAN (Rep. Unico). Yung ang proposal ni Senator Shahani, e.

SEN. ANGARA. In the case of private hospitals they got the grant of 15% discount,
provided that, the private hospitals can claim the expense as a tax credit.

REP. AQUINO. Yah could be allowed as deductions in the perpetrations of (inaudible)

income.

SEN. ANGARA. I-tax credit na lang natin para walang cash-out ano?

REP. AQUINO. Oo, tax credit. Tama, Okay. Hospitals ba o lahat ng establishments na
covered.

THE CHAIRMAN. (Rep. Unico). Sa kuwan lang yon, as private hospitals lang.

REP. AQUINO. Ano ba yung establishments na covered?

SEN. ANGARA. Restaurant lodging houses, recreation centers.

REP. AQUINO. All establishments covered siguro?

SEN. ANGARA. From all establishments. Alisin na natin 'Yung kuwan kung ganon. Can
we go back to Section 4 ha?

REP. AQUINO. Oho.

SEN. ANGARA. Letter A. To capture that thought, we'll say the grant of 20% discount
from all establishments et cetera, et cetera, provided that said establishments - provided
that private establishments may claim the cost as a tax credit. Ganon ba 'yon?
REP. AQUINO. Yah.

SEN. ANGARA. Dahil kung government, they don't need to claim it.

THE CHAIRMAN. (Rep. Unico). Tax credit.

SEN. ANGARA. As a tax credit [rather] than a kuwan - deduction, Okay.

REP. AQUINO Okay.

SEN. ANGARA. Sige Okay. Di subject to style na lang sa Letter A".89

Special Law

Over General Law

Sixth and last, RA 7432 is a special law that should prevail over the Tax Code -- a
general law. "x x x [T]he rule is that on a specific matter the special law shall prevail
over the general law, which shall

be resorted to only to supply deficiencies in the former."90 In addition, "[w]here there

are two statutes, the earlier special and the later general -- the terms of the general
broad enough to include the matter provided for in the special -- the fact that one is
special and the other is general creates a presumption that the special is to be
considered as remaining an exception to the general,91 one as a general law of the
land, the other as the law of a particular case."92 "It is a canon of statutory construction
that a later statute, general in its terms and not expressly repealing a prior special
statute, will ordinarily not affect the special provisions of such earlier statute."93
RA 7432 is an earlier law not expressly repealed by, and therefore remains an
exception to, the Tax Code -- a later law. When the former states that a tax credit may
be claimed, then the requirement of prior tax payments under certain provisions of the
latter, as discussed above, cannot be made to apply. Neither can the instances of or
references to a tax deduction under the Tax Code94 be made to restrict RA 7432. No
provision of any revenue regulation can supplant or modify the acts of Congress.

WHEREFORE, the Petition is hereby DENIED. The assailed Decision and Resolution of
the Court of Appeals AFFIRMED. No pronouncement as to costs.

SO ORDERED.